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Minister calls for answers to Corporation Tax questions

Michael Moore said questions from business and government cannot remain unanswered if calls for the devolution of corporation tax are "to be taken seriously"

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Weeks  after the Scottish Government produced their paper on devolving Corporation Tax they have still to answer more than 40 questions put to them by Scottish business and HM Treasury.

Scottish Secretary Michael Moore urged the Scottish Government to start answering the questions if they wanted to be taken seriously on the matter.

The Scottish Government wants to see Corporation Tax devolved as part of the Scotland Bill legislation going through Westminster.  Scottish business organisations and the UK tax Minister have raised a number of questions which they would like answered as part of the consideration of this proposal.

Michael Moore also questioned the Scottish Government consultation which finished on September 5th and resulted in a final paper three days later without addressing any of the questions posed by those who responded.

Michael Moore said:

“Weeks after the Scottish Government produced their paper on devolving corporation tax we have heard nothing from them on the 40 or more questions that have been put to them by Scottish business and the Treasury.

“They must address these serious questions if they want to be taken seriously. I have always told the First Minister that we will consider any well argued case backed up by evidence. As it stands, their case for Corporation Tax clearly fails in this respect.

“CBI Scotland, Scottish Financial Enterprise, the Institute of Chartered Accountants of Scotland, the Scottish Chambers and SCDI have all taken the time to question the Corporation Tax proposals and it isn’tgood enough to simply ignore them. The First Minister has said that he doesn’ have a monopoly on wisdom and with complex tax matters he should listen to Scottish business.

“My colleague, David Gauke, the Minister responsible for the UK tax system, has also asked questions and been met with the same wall of silence. It really isn’ good enough. The nature of the consultation was always dubious. It ended on September 5th and produced an outcome on September 8th without pausing for any reflection.”

1.      What is your view of the benefits that Scottish companies get from a unified corporate tax regime with England and Wales?

2.      What proposals does the SG have for managing the costs associated with substantially reducing corporation tax in Scotland?

3.      What proposals do you have for dealing with tax motivated incorporation and the affect it would have on National Insurance and income tax receipts in Scotland?

4.      What proposals do you have for managing the administrative costs of an entirely separate corporation tax regime?

5.      How will you minimise the administrate burdens on business?

6.      What advice have you taken from accountancy firms?

7.      Are you proposing an entirely separate regime for taxing foreign profits?

8.      Do you have plans to establish a network of treaties and double tax agreements?

9.      What considerations have there been of State aid constraints which Scotland would be subject to in relation to the incentives discussed in Chapter 4?

10.     Your paper implies that devolution would provide scope to simplify the administration of the corporation tax system. How would you achieve this?

  1. If Scotland has to repay lost corporation tax revenues, what can it keep?

  2. If cutting corporation tax stimulates 20,000 new jobs, can Scotland keep the “new” PAYE and National Insurance generated?

  3. And what about the new income tax?

14 . What will the Scottish Corporation Tax base look like?

  1. What estimate can be made of:

(i) the value to the UK economy (and the Scottish) of the existing uniform rate of corporation tax across the UK single market?

16 . (ii) the potential value to the Scottish economy (and the UK) of varied rates of corporation tax within the UK single market?

17 . Would power to change the basis of the tax, as well as the rate, be devolved?

  1. UK corporation tax is based on taxable profits - could this change?

19 . (i) Would this power create the opportunity for increased simplification or otherwise improved tax levying?

  1. (ii) Would this bring additional complexity, particularly for companies with operations throughout the UK?

  2. Would transfer pricing legislation be needed to prevent profit shifting?

  3. How would that be put in place and enforced?

  4. How could the issue be otherwise dealt with?

  5. What estimates can be made of the likely costs in terms of administration and compliance of devolving corporation tax?

  6. Would this be an increase or decrease in overall tax administration and compliance costs; and who would be affected?

  7. How will double taxation treaties (inter-jurisdictional tax agreements that can influence how multinational businesses arrange their operations and their tax affairs) be affected, if at all?

  8. Would devolution create opportunities to improve these treaties for companies with operations in Scotland?

  9. How volatile would corporation tax receipts be, if assessed on a Scotland-only basis?

  10. (i) Would the risks of volatility be increased or decreased by narrowing the tax base to Scotland only?

  11. (ii) Is there a measurable value to business of being part of a larger, more diversified tax base?

  12. (iii) How could volatility be mitigated?

32.  If by borrowing, how much would such borrowing cost?

  1. Are there any specific implications for businesses based in Scotland but serving customers mainly in the rest of the UK?

  2. Where would they pay tax on their activities and how could devolving corporation tax improve their competitive position?

35 . Within the UK, will different rates of corporation tax distort the allocation of resources and investments within a notionally single market?

36 . Or make that allocation more efficient?

  1. Is there a causal link between rates of corporation tax and economic growth?

  2. Will the introduction of differing rates of corporation tax within the UK encourage or discourage potential inward investors from setting up headquarters, subsidiaries or branches in the UK or in Scotland?

  3. We believe that further work and evidence is required to ascertain what the actual economic impact of devolution of corporation tax to Scotland would be.  This remains unclear at the moment.  What would the economic impact be and when?

  4. We believe that a broader view of the drivers of economic success needs to be considered when debating the likely impact of devolution of corporation tax.  Will companies make strategic decisions based on corporation tax rates alone or what other conditions drive decision making?

  5. We believe further work would be required on assessing the impact on the public finances of there were to be a short, medium or long term reduction in tax revenue due to a lower rate of corporation tax being levied in Scotland.  What will the revenues be?

  6. We believe that the constituent  parts of the tax base need to be defined.  In other words, which companies would pay corporation tax in Scotland?  81% of corporation tax in the UK comes from 1% of the companies.  What proportion of this tax would be payable in Scotland?  This needs defined before we can estimate the shortfall or surplus compared to current revenues?

  7. Finally, our members have expressed concerns that if a separate tax authority were set up to administer corporation tax in Scotland they would not welcome the potential complexity and burden of dealing with two tax authorities - the Scottish Tax Agency and HMRC.

Published 31 October 2011